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Extra luxury car tax slug now in force

Taxing time: Luxury car buyers will now have to pay tax on a dealer’s factory-supplied discount.

Buyers to wear cost of tax burden placed on dealer discounts

2 May 2014

LUXURY cars Australia-wide have all become just a little more expensive, with an Australian Tax Office ruling finally taking hold after months of delay.

The ruling, which means buyers must also pay luxury car tax on any factory incentives that are supplied to dealerships to help to make cars cheaper, will add about $1000 to a vehicle for every $3000 of dealer discount.

The tax office delayed the introduction of the extra tax slug by several months to allow dealerships to prepare for its introduction on May 1.

The extra tax burden on buyers relates to the verdict of a court case brought against new-car dealership group AP Group last year by the Commissioner of Taxation.

The court’s ruling said that factory bonuses paid to dealerships to make cars even cheaper for buyers should also attract luxury car tax.

That means if a luxury car buyer, say, pays $59,000 for a $62,000 vehicle that includes a $3000 dealer discount provided by the factory, the buyer will have to pay the full 33 per cent luxury car tax on the hidden bonus – an extra $1000.

According to the tax office, the court case means payments such as fleet rebates or run-out model support payments received from the manufacturer or distributor “will now need to be included as part of the sale price of the car”.

“This will increase the LCT value of the car and could result in some cars now exceeding the LCT threshold,” the tax office warned.

Mercedes-Benz Australia warned earlier this year that the extra tax burden would pass directly on to buyers.

The luxury car tax’s threshold, where buyers must pay an extra 33 per cent in tax for every dollar spent above a certain price, is currently set at $60,316.

Buyers wanting fuel-efficient cars that use no more than 7.0L/100km have a higher threshold, set at $75,375.

The federal government resets the luxury car tax threshold each financial year.

This financial year, the tax is expected to raise about $400 million according to the government’s mid-year economic forecast, up from an earlier budget estimate of about $380 million.

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